Tax Rates, Offsets and Rebates: What the Budget Puts Back in Your Pocket
Australian Federal Budget 2026-27 — Tax Reform Series | Article 3 of 4
Alongside the structural reforms, the Budget includes several direct relief measures for individual taxpayers — lower income tax rates, a new offset, a simplified deductions system, and adjustments to Medicare and private health rebates. Here is what is changing and when.
Income Tax Rate Cuts (Already Legislated)
These cuts were already passed into law and are not new Budget announcements — the Budget confirms their continuation. The lowest personal tax rate (applying to income between $18,201 and $45,000) is being reduced in two steps:
Taxable Income |
2025-26 |
2026-27 |
2027-28 |
|---|---|---|---|
| $0 – $18,200 | Tax-free | Tax-free | Tax-free |
| $18,201 – $45,000 | 16% | 15% | 14% |
| $45,001 – $135,000 | 30% | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% | 37% |
| $190,001+ | 45% | 45% | 45% |
For someone earning $45,000 or above, the full two-year reduction saves around $540 per year compared to current rates. Higher earners receive the same dollar saving — the reduction only applies within that lowest band.
$250 Working Australians Tax Offset (from 1 July 2027)
A permanent $250 annual offset for Australians earning income from work — salary and wages, or business income for sole traders. Applied automatically after lodging a tax return. No separate claim required.
Combined with the existing Low Income Tax Offset, it raises the effective tax-free threshold by nearly $1,800 to around $19,985 (or up to $24,985 for those also eligible for LITO). The Government estimates over 13 million workers will benefit.
$1,000 Standard Work Deduction (from 1 July 2026 — this financial year)
Eligible taxpayers can claim up to $1,000 in work-related deductions without itemising or keeping any receipts. If your actual work-related costs are below $1,000, simply claim the standard deduction.
Those with actual expenses above $1,000 can still claim the higher amount in the usual way — this is a floor, not a ceiling. Charitable donations, union fees and professional memberships can still be claimed on top of the standard deduction.
This is the most immediately practical change for everyday taxpayers and takes effect for returns being prepared right now. Worth highlighting to clients who have historically underclaimed or not bothered with substantiation for modest amounts.
Medicare Levy Low-Income Thresholds (from 1 July 2025)
Thresholds have increased by approximately 2.9% in line with CPI. Below these thresholds, no Medicare levy applies:
Category Previous New Singles $27,222 $28,011 Families $45,907 $47,238 Single seniors/pensioners $43,020 $44,268 Family seniors/pensioners $59,886 $61,623 Per dependent child/student $4,216 $4,338
These apply to the current income year's returns.
Private Health Insurance Rebate: Age-Based Uplift Removed (from 1 April 2027)
Currently, PHI rebate percentages increase based on the age of the oldest person on the policy — those 65-69 receive a higher rebate, those 70+ higher again. From 1 April 2027, this age-based uplift is removed. All eligible policyholders receive the same base rebate for their income tier regardless of age.
At current rates, the impact is roughly:
Ages 65-69: lose ~4 percentage points of rebate
Ages 70+: lose ~8 percentage points of rebate
On a $5,000 annual premium at the base tier, this represents a reduction of up to ~$400 per year for older policyholders.
Savings from this measure are being redirected to fund additional aged care beds and home care supports.
Key Dates
Change Date Medicare levy thresholds increase 1 July 2025 (current year) $1,000 standard work deduction 1 July 2026 Income tax rate 16% → 15% 1 July 2026 Age-based PHI rebate uplift removed 1 April 2027 Income tax rate 15% → 14% 1 July 2027 $250 Working Australians Tax Offset 1 July 2027
All proposed measures are subject to legislation and may change. This article is general information only and does not constitute tax or financial advice.